The pensions industry has reacted with disappointment to the news that the state pension triple lock will remain in place following the deal between the Conservative and Democratic Unionist parties.
As part of the deal announced today (26 June) which will see the DUP support a minority Conservative government in key votes such as the Budget and Queen’s Speech, winter fuel payments will also be kept.
The Conservatives had promised to means test winter fuel payments and scrap the triple lock – which sees the state pension increase by the highest of inflation, earnings and 2.5 per cent – if they won this month’s general election.
Estimates by the Office for Budget Responsibility suggest keeping the triple lock will cost £15bn more than earnings indexation by 2060.
Tom Selby, a senior analyst at AJ Bell, said: “Political necessity has once again trumped long-term thinking when it comes to the state pension triple-lock.
“The policy has simply become a symbol for doing right by older people, and as a result there has been little serious debate over its purpose or sustainability.
“The state pension system will come crashing down unless spending is reigned in, with estimates suggesting it will cost £30bn more in today’s terms in 50 years’ time unless reforms are introduced.
“This will involve either reducing the amount people receive, or increasing the state pension age.
“Neither of these reforms will be popular but if politicians refuse to address this reality they will risk further piling the burden on future generations.”
Steven Cameron, pensions director at Aegon, said that while inflation is above 2.5 per cent retaining the triple lock will make little difference, but questioned its sustainability once inflation began falling again.
He said: “The bigger question is for how long future Governments can keep it in place, particularly if inflation returns to below 2.5 per cent.
“With increased focus on intergenerational fairness, constantly prioritising retirees over those of working age could become increasingly politically difficult.”
Rachael Griffin, tax and financial planning expert at Old Mutual Wealth, said: “While it’s discouraging the Conservatives have pushed aside this expensive issue, it now gives them the opportunity to carefully consider their approach.”
Former pensions minister Steve Webb, who is now director of policy at Royal London and was in office when the policy was introduced has previously defended the triple lock but has questioned whether it should remain in place indefinitely.
Reacting to the Tory-DUP deal, he said: “Retaining the triple lock is likely to be relatively cheap, now that inflation has risen above the 2.5 per cent floor.
“Means-testing winter fuel payments was always going to be complex and controversial, so many Conservative MPs will be pleased to see this policy ditched.
“However, the DUP decision to back Conservative finance bills probably means a greater likelihood of getting cuts to pension tax relief through Parliament.”